English regulator: ‘very liquid’ social housing sector can withstand coronavirus arrears

Mr Walters said that it is likely that the benefits system would take some of the strain, when tenants who normally derive all or part of their income from employment face a lack of earnings.

In Scotland, where the Scottish government called on housing associations on 18 March to ensure there were no evictions as a result of coronavirus-related hardship, housing minister Kevin Stewart asked of landlords: “[Urge] your tenants to apply for statutory sick pay and Universal Credit where they are eligible”.

Mr Walters cautioned that tenants could face delays in accessing Universal Credit, and also that because the benefit is not “hypothecated” towards direct payment of rent, some tenants could opt to spend the money on other needs.

“There are a range of variables and factors for the tenant to think about and then for the landlords to think about. But I think importantly from a straight credit perspective, what is happening is tenants are building up arrears. They will need to repay those arrears in due course once the situation has stabilised and the benefits situation has caught up.”

Further government announcements on Friday included increases to Universal Credit, and a new grant scheme to pay up to 80% of retained workers’ wages. Referring to the new measures, Mr Walters said “[We think] the announcement will help address some of the concerns of tenants, but clearly these are unprecedented times and there is lots of new information for people to digest what it means for them”.

While home owners, and now buy-to-let landlords are being offered 3-month payment holidays from the banks, as part of wider government measures, there is no such mandated “holiday” for HAs’ payments to their lenders.

Asked whether housing associations therefore required additional specific government support to assist with the crisis, akin to the emergency package of £330bn of guaranteed loans being made available to corporates through the Bank of England, Mr Walters said: “There’s already a range of different financial measures that associations could access, so we’ve obviously got a possible [Affordable Homes] Guarantee Scheme, we’ve got the [Affordable Homes] Programme.”

“Associations generally are quite robust businesses; they are going into this quite liquid. I don’t think this is a sector of the economy that is the most in need of additional government support at the moment.”

Prior to the government’s emergency Budget and additional announcements to address economic implications of the pandemic in recent days, the chancellor’s original 11 March Budget set out a new five-year £12.2bn Affordable Homes Programme – £3bn more than the existing four-year programme. This covers the five years from 2021/22 financial year to 2025/26, and includes £2bn of funding for strategic partnerships, which had already been announced in September 2018.

A new Affordable Homes Guarantee Scheme was also due to launch this year, with MHCLG last year launching a tender for the delivery partner.

Impact on covenants

Mr Walters said that from a technical perspective, the fact that the crisis has hit with just a few weeks to go until year-end for most associations is helpful when it comes to loan covenant calculations.

“I don’t think this measure will necessarily hit the covenants that bite at the end of March, as most of the income for the year has already been collected,” he said.

Looking beyond year-end, he said: “I think that from a cash perspective, they should be OK, and then from a covenant perspective – because this might bite on some income, interest cover covenants – I would suspect most associations again will probably be OK.

“You can never say never, because [if you look at the stock market, for example], black swan events are happening at the moment, but of all the sectors in the UK economy this is probably still one of the safest.”

Mr Walters emphasised: “If there are associations that feel they are under financial stress, that’s a key part of our job as a regulator to address those issues, so we would expect those organisations to come and talk to us. If anyone is feeling they can’t make their payments then they must let us know at the earliest possible stage.”

But he added: “To be fair, we’ve not got any indications that anybody’s in that situation or likely to be in that situation soon.

“We collect information in the quarterly survey and through the [financial forecast returns], so we generally have quite a good feel for where the sector is financially.”